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- On Monday, USD/CAD is attracting buyers and supported by a decrease in Crude Oil prices.
- Elevated US bond yields and a softer risk tone are bolstering the USD and providing additional support.
- Uncertainty over the Fed’s rate cut trajectory may hinder fresh bets by bulls.
During the Asian session on the first day of the week, the USD/CAD pair is ticking higher, but the buying momentum is lacking, and it remains within the trading range from Friday. Current spot prices are just above mid-1.3300s and appear ready to continue the recent recovery from a five-month low seen in December.
Saudi Arabia’s decision to slash the official selling price (OSP) for February-loading Arab Light to Asia to the lowest level since November 2021 has caused renewed selling pressure on Crude Oil prices. This move is undermining the Loonie, which is linked to commodities, and is acting as a tailwind for the USD/CAD pair. However, escalating tensions in the Israel-Hamas conflict and continued shipping disruptions in the Red Sea should help limit any significant downside for oil.
In addition, subdued US Dollar (USD) price action may hold back aggressive bullish bets on the USD/CAD pair and cap the upside. Despite a strong December US jobs report, the disappointing release of the ISM Non-Manufacturing PMI raises uncertainty over the Federal Reserve’s (Fed) rate cuts trajectory and does not provide a boost to the USD.
Meanwhile, comments from Dallas Fed President Lorie Logan about the risk of inflation picking back up without sufficiently tight financial conditions and supportive remarks from Richmond Fed President Thomas Barkin about the economy’s path to a soft landing may contribute to elevated US Treasury bond yields and benefit the safe-haven dollar along with a fresh decline in US equity futures.
Given the overall fundamental backdrop, the USD/CAD bulls seem to have the upper hand, but market participants may prefer to wait for the latest US consumer inflation figures before placing new directional bets. Additionally, a speech by Atlanta Fed President Raphael Bostic, US bond yields, and broader risk sentiment, as well as oil price dynamics, may influence the USD in the near term.
Technical levels to watch
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